This month, we share an update on the progress of auto-enrolment and regulatory updates for pension schemes. Also of interest will be the key themes emerging from submissions made as part of the public consultation on the Standard Fund Threshold (SFT) regime.
Auto-enrolment coming in Q4
While the auto-enrolment timelines are ambitious, Minister for Social Protection Heather Humphreys has confirmed the Government is aiming for a Q4 implementation. She strongly advised all employers to budget for that timeline.
She described the processing of auto-enrolment for employers as “nothing more than the processing of a simple payroll instruction”.
Moreover, she confirmed the CPA will be a statutory body under the aegis of a Government Department, meaning it’ll be subject to high public oversight and security.
The drafting and publication of legislation relating to auto-enrolment has been included on the Government's priority publications list for the Spring session of the Dáil.
Employers need to take action – in particular regarding employees not currently enrolled in a pension plan. Notwithstanding the Minister’s commitments, employers must consider the need to operate different pension arrangements.
Regulatory update: stay ahead
A supervisory review process for Master Trusts and large defined benefit and defined contribution schemes will start this year. Schemes selected for review will be notified early in 2024.
For employers continuing to operate a standalone pension scheme, trustees must take these regulatory actions:
1. Annual Compliance Statement (ACS): The ACS, which should have been completed by 31 January 2024, must be certified for accuracy and completeness by at least two trustees.
2. Critical administration and investment reviews: Trustees of defined benefit and defined contribution pension schemes must conduct an in-depth review of administrator and investment manager performance by 22 April 2024.
3. Own risk assessments: Own risk assessments must be completed by 22 April 2024.
Fees for occupational pension schemes: The new basis for fee calculation is in effect. From 1 January 2024, for schemes with 20+ participating employers on 31 December of the preceding year of account, fees must be calculated based on the number of active members as at 31 December of the preceding year of account.
Trustees face new sustainability reporting requirements: The Pensions Act was amended to include compliance by the trustees of pension schemes with the Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability. Trustees must, on request, give the Authority the information it needs relating to these regulations.
Guidance expected on DORA: The Digital Operations Resilience Act (DORA) was adopted by the European Council in late 2022. This includes regulation and directives on digital operational resilience for occupational pension schemes with 15 or more members.
This regulation is now in force and will apply in full from January 2025. The Pensions Authority will likely issue guidance on DORA and its implications for occupational pension schemes over the coming months.
In summary, employers should prepare for auto-enrolment. Trustees may well find their schemes have been chosen for a regulatory review by the Pensions Authority.
Ensuring all regulatory requirements have been met will be a priority, particularly in light of the three-year deadline in April 2024 for completion of the own risk assessment, administration and investment critical reviews.
Standard fund threshold – public consultation
The public consultation on the standard fund threshold (SFT) has now closed to submissions.
The consultation document outlined eight terms of reference for the examination. These cover topics such as the rationale, calibration, impact, operation and simplification of the SFT.
Emerging themes from stakeholder submissions published online include:
1. Increasing the SFT limit: many submissions highlighted the need to adjust the SFT limit. Currently set at €2 million, this threshold has remained unchanged since 2014.
Respondents emphasised that economic, social, and demographic factors, such as wage inflation and longer life expectancies, necessitate a significant increase in the SFT.
2. Indexing the SFT: to ensure the SFT remains relevant over time, respondents proposed linking it to specific measures, such as changes in either the Consumer Price Index (CPI), average earnings or the State pension.
3. Addressing inequities and complexities: Stakeholders expressed concerns about inequities and complexities in the SFT regime between public and private sector workers, as well as among different pension schemes (defined benefit compared with defined contribution) and across different categories of taxpayers.
4. Reduce the chargeable excess tax (CET) rate: The CET rate, now 40%, has also drawn attention. Respondents argue this rate is disproportionately high for those inadvertently breaching the SFT limit due to factors such as revaluation of defined benefit scheme benefits or investment growth.
5. Flexibility in CET payment options: A disparity exists between private and public sector employees. While private sector retirees must pay their CET bills in a lump sum at retirement, public sector employees can spread this cost over a 20-year period.
The public consultation has shed light on critical aspects of the SFT, prompting discussions on its relevance, fairness, and practical implementation. The Minister for Finance will consider the consultation results towards the summer this year.
Employers need to consider their strategy where employees are nearing the SFT. They should consider, for example, notification to members, options to mitigate the potential impact of breaching the SFT and offering individual financial advice.
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